Management at Physicians Formula (FACE) continues to implement the growth strategy of focusing on the company's niche in the cosmetics industry and generating sales growth through new product introductions, increased distribution and international expansion. Instead of being driven by changing fashion trends, Physicians Formula differentiates itself by concentrating on a segment of the cosmetics industry that addresses skin imperfections. However, the recent strategy in the third quarter to generate sales by increasing trade spending is concerning.

Since the company's IPO in November 2006, Physicians Formula's stock has traded in a wide P/E range of 16.4 to 46.3. The company has exhibited an above-average sales growth rate, but earnings growth has lagged sales growth due to the incremental cost of being a public company, and the costs required to launch new products and maintain shelf space.

The stock is selling at the low-end of the (albeit short) historical range due to management's strategy to aggressively spend on advertising and promotional activities and the expectation of poor seasonal sales. The target price is $10.25 per share based on a P/E of 21. The Hold rating is maintained.